BY TATIRA ZWINOIRA
LOCAL financial services boutique firm IH Securities says it expects austerity and economic headwinds facing the country to persist after a plethora of new taxes were introduced by government in last week’s 2019 mid-term fiscal review.
In an analysis of the 2019 mid-term review statement, IH Securities said from their perspective, the statement did not address any of the economic adversities.
“From our view, the 2019 mid-year budget review does not materially reverse the persisting economic adversities, which include stagflation, acute foreign currency shortages, infrastructure deficiencies and power shortages. The MoF (Ministry of Finance) has made several adjustments, including an upward revision of the annual national budget, excluding loan repayments, to $18,6 billion and adjustments to the austerity measures stipulated in the National Budget announced in November last year to account for currency depreciation and mounting inflation,” IH Securities said.
“The reduction of subsidies through the much-awaited adjustments, that is, electricity tariffs, are anticipated to mount further inflationary pressure in the short-term. Furthermore, the revised budget poses a risk of burgeoning money supply amid government’s target money supply growth of 10% year-on-year by December 2019. As it stands, money supply as of May 2019 stood at $13 billion … from $10 billion in December 2018.
“Meanwhile, the revised aggregate government expenditure is projected at $18,6 billion, with the Treasury anticipating a $4,6 billion fiscal deficit, implying a potential for further growth in money supply by year-end from the $13 billion reported in May. Furthermore, the government is in the process of issuing $180 million worth of T-Bills (Treasury Bills], with plans afloat to establish a functional auction system for T-Bills before year-end.”
IH Securities said they expected a further depreciation of the local currency, inflationary pressure and economic adversity to persist in the short-to-medium-term, until money supply and government spending is curbed.
Last week’s 2019 mid-term fiscal review statement sought to carry on with austerity while also containing government expenditure.
However, total government spending for the period January to June 2019 was $4,2 billion against a target of $3,7 billion, which is a $532 million over-expenditure (15%).
In presenting last week’s mid-term review, Finance minister Mthuli Ncube said the negative variance was as “a result of inescapable and unforeseen expenditures on both current and capital heads arising from higher than anticipated inflation, exchange rate fluctuations, drought and the devastating Cyclone Idai”.
Due to these challenges, Ncube proposed increasing the wage bill for civil servants from $4,1 billion planned for 2019 to $5,9 billion to allow for salary increments.
He further identified and scaled up social safety net programmes under health, education and social protection, which will see the initial budget increasing from $267,6 million to $1,135 billion.
However, with the rapid erosion of salaries on the back of a devaluing currency, these efforts are expected to have a minimal impact, made worse by increases in fuel, electricity and alcohol taxes as well as government goods and services.
“It is our view that the recent hike in fuel and electricity prices will continue to exert upward pressure on prices, resulting in further inflationary pressures in the short-term,” IH Securities said.